Silicon Valley Bank Schedule to Loan and Security Agreement
Silicon Valley Bank
Loan and Security Agreement
Borrower: DIOMED, INC., a Delaware corporation
Address: Xxx Xxxxxx Xxxx
Xxxxxxx, Xxxxxxxxxxxxx 00000
Date: June 8, 2004
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date
between SILICON VALLEY BANK, a California-chartered bank, with its principal
place of business at 0000 Xxxxxx Xxxxx, Xxxxx Xxxxx, Xxxxxxxxxx 00000 and with a
loan production office located at One Xxxxxx Executive Park, Suite 200, 0000
Xxxxxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000 ("Silicon") and the borrower
named above (the "Borrower"), whose chief executive office is located at the
above address ("Borrower's Address"). The Schedule and Exhibits to this
Agreement (the "Schedule" and the "Exhibits," respectively) shall for all
purposes be deemed to be part of this Agreement, and the same are integral parts
of this Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
Section 1 LOANS.
1.1 Loans. Silicon will make loans to Borrower (the "Loans") up to the
amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event
of Default has occurred and is continuing, and subject to deduction of any
reserves for accrued interest and, after the occurrence of the Transition Event,
such other Reserves as Silicon deems proper from time to time in its good faith
business judgment. Amounts borrowed may be repaid and reborrowed during the term
of this Agreement.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. After it has become payable, interest may, in Silicon's
discretion, be charged to Borrower's loan account, and the same shall thereafter
bear interest at the same rate as the other Loans. Silicon may, in its
discretion, charge interest to Borrower's Deposit Accounts maintained with
Silicon.
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other monetary Obligations exceeds the Credit Limit
(an "Overadvance"), Borrower shall within two (2) Business Days after the
earlier of (i) the Borrower becoming aware of the occurrence of such
Overadvance, or (ii) notification by Silicon of the occurrence of such
Overadvance, pay the amount of the excess to Silicon, without notice or demand.
Without limiting Borrower's obligation to repay to Silicon the amount of any
Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount
of any Overadvance, on demand, at the Default Rate.
1.4 Fees. Borrower shall pay Silicon the fees shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to
Silicon by facsimile or telephone. Loan requests received after 12:00 Noon,
Pacific time, will not be considered by Silicon until the next Business Day.
Silicon may rely on any telephone request for a Loan given by a person whom
Silicon believes is an authorized representative of Borrower, and Borrower will
indemnify Silicon for any loss Silicon suffers as a result of that reliance. In
the event Borrower has elected to be on "non-borrowing reporting status" (see
Section 6 of the Schedule), Borrower shall furnish Silicon with a Loan request
at least thirty (30) days prior to the requested funding date.
1.6 Letters of Credit. At the request of Borrower, Silicon may, in its
good faith business judgment, issue or arrange for the issuance of letters of
credit for the account of Borrower, in each case in form and substance
satisfactory to Silicon in its sole discretion (collectively, "Letters of
Credit"). The aggregate face amount of all Letters of Credit outstanding from
time to time (plus all Silicon exposure under any foreign exchange contracts and
Cash Management Services) shall not exceed the amount shown on the Schedule (the
"Letter of Credit Sublimit"), and shall be reserved against Loans which would
otherwise be available hereunder, and in the event at any time there are
insufficient Loans available to Borrower for such reserve, Borrower shall
deposit and maintain with Silicon cash collateral in an amount at all times
equal to such deficiency, which shall be held as Collateral for all purposes of
this Agreement. Borrower shall pay all customary bank charges at customary rates
(including charges of Silicon) for the issuance of Letters of Credit, together
with such additional fee as Silicon's letter of credit department shall charge
in connection with the issuance of the Letters of Credit. Any payment by Silicon
under or in connection with a Letter of Credit shall constitute a Loan hereunder
on the date such payment is made. Each Letter of Credit shall have an expiry
date no later than thirty days prior to the Maturity Date. Borrower hereby
agrees to indemnify, save, and hold Silicon harmless from any loss, cost,
expense, or liability, including payments made by Silicon, expenses, and
reasonable attorneys' fees incurred by Silicon arising out of or in connection
with any Letters of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Silicon and
opened for Borrower's account or by Silicon's interpretations of any Letter of
Credit issued by Silicon for Borrower's account, and Borrower understands and
agrees that Silicon shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Silicon to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost, expense, or
liability incurred by Silicon under any Letter of Credit as a result of
Silicon's indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other Loan Documents
relating to Letters of Credit are cumulative.
1.7 Cash Management Services Sublimit. In addition to Section 1.6
above, Borrower may also use up to the amount set forth on the Schedule for Cash
Management Services. Such aggregate amounts utilized under the Cash Management
Services Sublimit shall at all times reduce the amount otherwise available for
Loans, letters of credit, foreign exchange contracts or other credit
accommodations hereunder. Any amounts Silicon pays on behalf of Borrower or any
amounts that are not paid by Borrower for any Cash Management Services will be
treated as Loans hereunder and will accrue interest at the interest rate
applicable to Loans.
Section 2 SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of
the Obligations when due, and the performance of each of the Borrower's duties
under this Agreement and all documents executed in connection herewith, Borrower
hereby grants to Silicon a continuing security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Inventory, Equipment, Payment Intangibles, Letter-of-Credit Rights,
Supporting Obligations, Accounts, and General Intangibles, Deposit Accounts, and
all money, and all property now or at any time in the future in Silicon's
possession (including claims and credit balances), and all proceeds (including
proceeds of any insurance policies, proceeds of proceeds and claims against
third parties), all products and all books and records related to any of the
foregoing (all of the foregoing, together with all other property in which
Silicon may now or in the future be granted a lien or security interest, is
referred to herein, collectively, as the "Collateral"). The security interest
granted herein shall be a first priority security interest in the Collateral.
After the occurrence of a Default, Silicon may place a "hold" on any Deposit
Account pledged as collateral, but only to the extent of Borrower's monetary
Obligations and only for so long as such Default continues. Borrower is not a
party to, nor is bound by, any license or other agreement with respect to which
the Borrower is the licensee that prohibits or otherwise restricts Borrower from
granting a security interest in Borrower's interest in such license or agreement
or any other property. Without prior consent from Silicon, Borrower shall not
enter into, or become bound by, any such license or agreement which is
reasonably likely to have a material impact on Silicon's business or financial
condition. Borrower shall take such steps as Silicon requests to obtain the
consent of, or waiver by, any person whose consent or waiver is necessary for
all such licenses or contract rights to be deemed "Collateral" and for Silicon
to have a security interest in it that might otherwise be restricted or
prohibited by law or by the terms of any such license or agreement, whether now
existing or entered into in the future.
Notwithstanding the foregoing, the Collateral does not include: any copyright
rights, copyright applications, copyright registrations, and like protections in
each work of authorship and derivative work, whether published or unpublished,
now owned or later acquired; any patents, trademarks, service marks, and
applications therefor; any trade secret rights, including any rights to
unpatented inventions, now owned or hereafter acquired (the "Intellectual
Property"). Notwithstanding the foregoing, at all times, the Collateral shall
include all accounts, license and royalty fees, and other revenues, proceeds, or
income arising out of or relating to any of the foregoing Intellectual Property.
Section 3 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.
In order to induce Silicon to enter into this Agreement and to make
Loans, except as noted on the attached Schedule, Borrower represents and
warrants to Silicon as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants, throughout the term of this
Agreement and until all Obligations have been paid and performed in full:
3.1 Corporate Existence and Authority. Borrower is and will continue to
be, duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a material adverse effect on Borrower. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors' rights generally), (iii) do not violate
Borrower's organizational documents, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Perfection
Certificate are all prior names of Borrower and all of Borrower's present and
prior trade names. Borrower shall give Silicon 30 days' prior written notice
before changing its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the conduct
of business under a fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in
the heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Perfection Certificate. Borrower will give Silicon at least 30
days prior written notice before opening any additional place of business,
changing its chief executive office, changing its state of formation or moving
any of the Collateral to a location other than Borrower's Address or one of the
locations set forth on the Perfection Certificate, except that Borrower may
maintain sales offices in the ordinary course of business at which not more than
a total of $10,000 fair market value of Equipment is located.
3.4 Title to Collateral; Perfection; Permitted Liens.
(a) Borrower is now, and will at all times in the future be,
the sole owner of all the Collateral, except for items of Equipment
which are leased to Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon
now has, and will continue to have, a first-priority perfected and
enforceable security interest in all of the Collateral, subject only to
the Permitted Liens, and Borrower will at all times defend Silicon and
the Collateral against all claims of others.
(b) Borrower has set forth in the Perfection Certificate all
of Borrower's Deposit Accounts, and Borrower will give Silicon five
Business Days advance written notice before establishing any new
Deposit Accounts and will cause the institution where any such new
Deposit Account is maintained to execute and deliver to Silicon a
control agreement in form sufficient to perfect Silicon's security
interest in the Deposit Account and otherwise satisfactory to Silicon
in its good faith business judgment. Nothing herein limits any
requirements which may be set forth in the Schedule as to where Deposit
Accounts will be maintained.
(c) In the event that Borrower shall at any time after the
date hereof have any commercial tort claims against others, which it is
asserting or intends to assert, and in which the potential recovery
exceeds $100,000, Borrower shall promptly notify Silicon thereof in
writing and provide Silicon with such information regarding the same as
Silicon shall request (unless providing such information would waive
the Borrower's attorney-client privilege). Such notification to Silicon
shall constitute a grant of a security interest in the commercial tort
claim and all proceeds thereof to Silicon, and Borrower shall execute
and deliver all such documents and take all such actions as Silicon
shall request in connection therewith.
(d) None of the Collateral now is or will be affixed to any
real property in such a manner, or with such intent, as to become a
fixture. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in
any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove
any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest,
Borrower shall, whenever requested by Silicon, use its best efforts to
cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall
specify in its good faith business judgment. Borrower will keep in full
force and effect, and will comply with all material terms of, any lease
of real property where any of the Collateral now or in the future may
be located.
(e) Borrower hereby authorizes Silicon to file financing
statements, without notice to Borrower but with Silicon being obligated
to provide copies to Borrower within two (2) Business Days of such
filing, with all appropriate jurisdictions in order to perfect or
protect Silicon's interest or rights hereunder, which financing
statements may indicate the Collateral as "all assets of the Debtor
excluding Intellectual Property" or words of similar effect, or as
being of an equal or lesser scope, or with greater detail, all in
Silicon's discretion. Silicon shall effect any correction or
clarification to any such filings after notice from Borrower of any
inaccuracy or defect contained therein.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition (ordinary wear and tear excepted), and Borrower will not
use the Collateral for any unlawful purpose. Borrower will immediately advise
Silicon in writing of any material loss or damage to any material portion of the
Collateral.
3.6 Books and Records. Parent has maintained and will maintain at
Borrower's Address complete and accurate books and records, for the period
commencing February 14, 2002, comprising an accounting system in accordance with
GAAP.
3.7 Financial Condition, Statements and Reports. All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with GAAP and now and in the future will fairly present
the consolidated results of operations and financial condition of Parent, in
accordance with GAAP, at the times and for the periods therein stated. Between
the last date covered by any such statement provided to Silicon and the date
hereof, there has been no material adverse change in the financial condition or
business of Parent or Borrower. Each of Parent and Borrower is now and will
continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has
timely filed, and will timely file, all required tax returns and reports, and
Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower. Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower's obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. Borrower is unaware of any claims or adjustments proposed for
any of Borrower's prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.
3.9 Compliance with Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all material
provisions of all foreign, federal, state and local laws and regulations
applicable to Borrower, including, but not limited to, those relating to
Borrower's ownership of real or personal property, the conduct and licensing of
Borrower's business, and all environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower, or
in any material impairment in the ability of Borrower to carry on its business
in substantially the same manner as it is now being conducted. Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against Borrower
involving any single claim of $50,000 or more, or involving $100,000 or more in
the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
Section 4 ACCOUNTS.
4.1 Representations Relating to Accounts. Borrower represents and
warrants to Silicon as follows: Each Account with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, or the non-exclusive licensing of Intellectual Property,
in the ordinary course of Borrower's business, and (ii) meet the Minimum
Eligibility Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance.
Borrower represents and warrants to Silicon as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Account shall fully comply
in all material respects with all applicable laws and governmental rules and
regulations. To the best of Borrower's knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.3 Schedules and Documents Relating to Accounts. Upon the occurrence
of the Transition Event, Borrower shall deliver to Silicon transaction reports
and schedules of collections, as provided in the Schedule, on Silicon's standard
forms; provided, however, that Borrower's failure to execute and deliver the
same shall not affect or limit Silicon's security interest and other rights in
all of Borrower's Accounts, nor shall Silicon's failure to advance or lend
against a specific Account affect or limit Silicon's security interest and other
rights therein. In the event Borrower has elected to be on "non-borrowing
reporting status" (see Section 6 of the Schedule), Borrower shall furnish
Silicon with a Loan request at least thirty (30) days prior to the requested
funding date. Otherwise, Loan requests received after 12:00 Noon will not be
considered by Silicon until the next Business Day. Together with each such
schedule and assignment, or later if requested by Silicon, Borrower shall
furnish Silicon with copies (or, at Silicon's request, originals) of all
contracts, orders, invoices, and other similar documents, and all original
shipping instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Accounts, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Silicon an aged accounts receivable trial balance
in such form and at such intervals as Silicon shall request. In addition,
Borrower shall deliver to Silicon, on its request, the originals of all
instruments, chattel paper, security agreements, guarantees and other documents
and property evidencing or securing any Accounts, in the same form as received,
with all necessary endorsements and copies of all credit memos.
4.4 Collection of Accounts. Upon the occurrence of the Transition
Event, Borrower shall cause the Account Debtors to remit all Accounts to Silicon
and Silicon shall hold all payments on, and proceeds of, Accounts in a lockbox
account, or such other "blocked account" as Silicon may specify, pursuant to a
blocked account agreement in such form as Silicon may reasonably specify. All
such payments on, and proceeds of, Accounts shall, (i) prior to the occurrence
of an Event of Default, be applied to the Obligations in the following order:
first, to interest, second, to principal, in each case in chronological order
(oldest to newest), and third to all other monetary Obligations, in
chronological order (oldest to newest), and (ii) subsequent to the occurrence of
an Event of Default, be applied to the Obligations in such order as Silicon
shall determine. Silicon or its designee may, at any time, notify Account
Debtors that the Accounts have been assigned to Silicon. Silicon shall endeavor
to simultaneously provide copies to Borrower of any written notices that are
sent to Account Debtors.
4.5 Remittance of Proceeds. Upon the occurrence of the Transition
Event, all proceeds arising from the disposition of any Collateral shall be
delivered, in kind, by Borrower to Silicon in the original form in which
received by Borrower not later than the following Business Day after receipt by
Borrower, to be applied to the Obligations in accordance with the terms of
Section 4.4 above as are applicable to the application of payments and proceeds
of Accounts; provided that, if no Default or Event of Default has occurred and
is continuing, Borrower shall not be obligated to remit to Silicon the proceeds
of the sale of worn out or obsolete Equipment disposed of by Borrower in good
faith in an arm's length transaction for an aggregate purchase price of $25,000
or less (for all such transactions in any fiscal year). Upon the occurrence of
the Transition Event, Borrower agrees that it will not commingle proceeds of
Collateral with any of Borrower's other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Silicon. Nothing in this Section 4.5 limits the restrictions on
disposition of Collateral set forth elsewhere in this Agreement.
4.6 Disputes. Borrower shall notify Silicon promptly of all material
disputes or claims relating to Accounts. Borrower shall not forgive (completely
or partially), compromise or settle any Account for less than payment of at
least 90% of the amount that would constitute payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the actual amounts received by Silicon
in payment of any Accounts.
4.7 Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly determine the reason for such return and, if Borrower determines
that such return was valid, Borrower shall promptly issue a credit memorandum to
the Account Debtor in the appropriate amount (sending a copy to Silicon). In the
event any attempted return occurs after the occurrence and during the
continuance of any Event of Default, Borrower shall hold the returned Inventory
in trust for Silicon and immediately notify Silicon of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on Silicon's request deliver such returned Inventory
to Silicon.
4.8 Verification. Silicon may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 No Liability. Silicon shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Silicon
be deemed to be responsible for any of Borrower's obligations under any contract
or agreement giving rise to an Account. Nothing herein shall, however, relieve
Silicon from liability for its own gross negligence or willful misconduct.
Section 5 ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require and that are customary and in accordance with standard
practices for Borrower's industry and locations, and Borrower shall provide
evidence of such insurance to Silicon. All such insurance policies shall name
Silicon as an additional loss payee, and shall contain a lenders loss payee
endorsement in form reasonably acceptable to Silicon. Upon receipt of the
proceeds of any such insurance, Silicon shall apply such proceeds in reduction
of the Obligations as Silicon shall determine in its good faith business
judgment, except that, provided no Default or Event of Default has occurred and
is continuing, Silicon shall release to Borrower insurance proceeds with respect
to Equipment totaling less than $250,000, which, if deemed appropriate by the
Borrower in its commercially reasonable judgment, shall be utilized by Borrower
for the replacement of the Equipment with respect to which the insurance
proceeds were paid. Silicon may require confirmation of the use of the insurance
proceeds so released. If Borrower fails to provide or pay for any insurance,
Silicon may, but is not obligated to, obtain the same at Borrower's expense.
Borrower shall promptly deliver to Silicon copies of all material reports made
to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time specify in
its good faith business judgment.
5.4 Access to Collateral, Books and Records. At reasonable times, and
on not less than three (3) Business Day's notice, Silicon, or its agents, shall
have the right to inspect the Collateral, and the right to audit and copy
Borrower's books and records. Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but
Silicon shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing inspections and audits shall be at Borrower's expense and
the charge therefor shall be $750 per person per day (or such higher amount as
shall represent Silicon's then current standard charge for the same), plus
reasonable out-of-pocket expenses.
5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, which consent shall
not be unreasonably withheld, do any of the following: (i) merge or consolidate
with another corporation or entity; (ii) acquire any assets, except in the
ordinary course of business; (iii) enter into any other transaction outside the
ordinary course of business; (iv) sell or transfer any Collateral, except for
the sale of finished Inventory in the ordinary course of Borrower's business,
and except for the sale of obsolete or unneeded Equipment in the ordinary course
of business; (v) store any Inventory or other Collateral with any warehouseman
or other third party other than Inventory valued at less than $500,000 in the
aggregate constituting trial and demonstration units at customer and prospective
customers locations for defined periods of time; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis, other
than in the ordinary course of business in accordance with present practice;
(vii) make any loans of any money or other assets in excess of $50,000
individually or $100,000 in the aggregate, provided that for the purposes of the
foregoing, trial, demonstration, and "loaner" equipment shall be excluded;
(viii) incur any Indebtedness, other than Permitted Indebtedness; (ix) guarantee
or otherwise become liable with respect to the obligations of another party or
entity in excess of $50,000 individually or $100,000 in the aggregate; (x) pay
or declare any dividends on Borrower's stock (except for dividends payable
solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of Borrower's stock, other than as
described on Schedule 5.5 hereto, which includes a proposed reduction in the
authorized capital stock of the Borrower and a proposed reverse stock split and
reduction in authorized capital stock of the Parent; (xii) make any change in
Borrower's capital structure which would have a material adverse effect on
Borrower or on the prospect of repayment of the Obligations; (xiii) engage,
directly or indirectly, in any business other than the business currently
engaged in by Borrower or reasonably related thereto; or (xiv) dissolve or elect
to dissolve. Transactions permitted by the foregoing provisions of this Section
are only permitted if no Default or Event of Default would occur as a result of
such transaction.
5.6 Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Silicon with respect to any Collateral or relating
to Borrower, Borrower shall, without expense to Silicon, make available Borrower
and its officers, employees and agents and Borrower's books and records, to the
extent that Silicon may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon may, in its
good faith business judgment, deem necessary or useful in order to perfect and
maintain Silicon's perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.
Section 6 TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date") subject to Section
6.2 below.
6.2 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then, to the extent funds underlying such Letters of Credit have not already
been provided by Borrower to Silicon, on such date Borrower shall provide to
Silicon cash collateral in an amount equal to 105% of the face amount of all
such Letters of Credit plus all interest, fees and cost due or to become due in
connection therewith (as estimated by Silicon in its good faith business
judgment), to secure all of the Obligations relating to said Letters of Credit,
pursuant to Silicon's then standard form cash pledge agreement. Notwithstanding
any termination of this Agreement, all of Silicon's security interests in all of
the Collateral and all of the terms and provisions of this Agreement shall
continue in full force and effect until all Obligations have been paid and
performed in full; provided that Silicon may, in its sole discretion, refuse to
make any further Loans after termination. No termination shall in any way affect
or impair any right or remedy of Silicon, nor shall any such termination relieve
Borrower of any Obligation to Silicon, until all of the Obligations have been
paid and performed in full. Upon payment and performance in full of all the
Obligations and written termination of this Agreement by Silicon, Silicon shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Silicon's
security interests.
Section 7 EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
any Loan or any interest thereon or any other monetary Obligation (including,
without limitation, any Overadvance in accordance with Section 1.3) within two
(2) Business Days of the earlier to occur of (i) the Borrower becoming aware of
such failure, or (ii) notice of such failure from Silicon; or (c) omitted; or
(d) Borrower shall fail to comply with any of the financial covenants set forth
in the Schedule or shall fail to perform any other non-monetary Obligation which
by its nature cannot be cured, or shall fail to permit Silicon to conduct an
inspection or audit as specified in Section 5.4 hereof; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within 5 Business Days after the date due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same, or immediately upon the service of process upon Silicon
seeking to attach by trustee or other process, any of Borrower's funds on
deposit with, or assets of the Borrower in the possession of, Silicon; or (g)
any material default or event of default occurs under any obligation secured by
a Permitted Lien, which is not cured within any applicable cure period or waived
in writing by the holder of the Permitted Lien; or (h) Borrower breaches any
material term or obligation under any material agreement, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence or
insolvency of Borrower; or appointment of a receiver, trustee or custodian, for
all or any part of the property of, assignment for the benefit of creditors by,
or the commencement of any proceeding by Borrower under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (j) the commencement of any proceeding against Borrower or any guarantor of
any of the Obligations under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations (including the Guarantor)
under any bankruptcy or insolvency law; or (l) revocation or termination of, or
limitation or denial of liability upon, any pledge of any certificate of
deposit, securities or other property or asset of any kind pledged by any third
party to secure any or all of the Obligations, or any attempt to do any of the
foregoing, or commencement of proceedings by or against any such third party
under any bankruptcy or insolvency law; or (m) Borrower defaults under any
agreement evidencing any institutional indebtedness in excess of $100,000 to any
third party; or (n) Borrower makes any payment on account of any indebtedness or
obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or a default occurs and is
continuing under any instrument evidencing such subordinated indebtedness, or
the holder of any such subordinated indebtedness accelerates all or any portion
of such subordinated indebtedness or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (o) there shall be a change in the composition of the board of
directors of Parent such that a majority of the members of the board of
directors of Parent as of the date of this Agreement shall no longer constitute
a majority of Parent's board of directors, absent the prior written consent of
Silicon, or Parent shall fail to own 100% of the outstanding capital stock of
Borrower; or (p) Borrower shall generally not pay its debts as they become due,
or Borrower shall conceal, remove or transfer any part of its property, with
intent to hinder, delay or defraud its creditors, or make or suffer any transfer
of any of its property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or (q) there shall be (i) a material impairment in
the perfection or priority of Silicon's security interest in the Collateral or
in the value of such Collateral; (ii) a material adverse change in the business,
operations or condition (financial or otherwise) of the Borrower; or (iii) a
material and substantial impairment of the Borrower's ability to repay any
portion of the Obligations; or (r) Borrower shall breach any material term of
the Negative Pledge Agreement. Silicon may cease making any Loans hereunder
during any of the above cure periods, and thereafter if an Event of Default has
occurred and is continuing.
7.2 Remedies. Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, Silicon, at its option, and
without notice or demand of any kind (all of which are hereby expressly waived
by Borrower), may do any one or more of the following: (a) Cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other
document or agreement; (b) Accelerate and declare all or any part of the
Obligations to be immediately due, payable, and performable, notwithstanding any
deferred or installment payments allowed by any instrument evidencing or
relating to any Obligation; (c) Take possession of any or all of the Collateral
wherever it may be found, and for that purpose Borrower hereby authorizes
Silicon without judicial process to enter onto any of Borrower's premises
without interference to search for, take possession of, keep, store, or remove
any of the Collateral, and remain on the premises or cause a custodian to remain
on the premises in exclusive control thereof, without charge for so long as
Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Silicon seek to take possession of any of the Collateral by court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower's premises, vehicles, hoists,
lifts, cranes, and other Equipment and all other property without charge; (f)
Sell, lease or otherwise dispose of any of the Collateral, in its condition at
the time Silicon obtains possession of it or after further manufacturing,
processing or repair, at one or more public and/or private sales, in lots or in
bulk, for cash, exchange or other property, or on credit, and to adjourn any
such sale from time to time without notice other than oral announcement at the
time scheduled for sale. Silicon shall have the right to conduct such
disposition on Borrower's premises without charge, for such time or times as
Silicon deems reasonable, or on Silicon's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Silicon may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Accounts and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Silicon to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon's sole discretion, to grant extensions of time to pay,
compromise claims and settle Accounts and the like for less than face value; (h)
Offset against any sums in any of Borrower's general, special or other Deposit
Accounts with Silicon against any or all the Obligations; and (i) Demand and
receive possession of any of Borrower's federal and state income tax returns and
the books and records utilized in the preparation thereof or referring thereto.
All reasonable attorneys' fees, expenses, costs, liabilities and obligations
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be due on demand, and shall bear interest at a
rate equal to the highest interest rate applicable to any of the Obligations.
Without limiting any of Silicon's rights and remedies, from and after the
occurrence and during the continuance of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional four percent
(4%) per annum (the "Default Rate").
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least ten (10) days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least five (5) days before the sale in
a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m. local time at the place where the
sale is to occur; (v) Payment of the purchase price in cash or by cashier's
check or wire transfer is required; (vi) With respect to any sale of any of the
Collateral, Silicon may (but is not obligated to) direct any prospective
purchaser to ascertain directly from Borrower any and all information concerning
the same. Silicon shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
7.4 Power of Attorney. Upon the occurrence and during the continuance
of any Event of Default, without limiting Silicon's other rights and remedies,
Borrower grants to Silicon an irrevocable power of attorney coupled with an
interest, authorizing and permitting Silicon (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with written notice to Borrower, and at Borrower's expense, to do
any or all of the following, in Borrower's name or otherwise, but Silicon agrees
to exercise the following powers in a commercially reasonable manner: (a)
Execute on behalf of Borrower any documents that Silicon may, in its good faith
business judgment, deem advisable in order to perfect and maintain Silicon's
security interest in the Collateral, or in order to exercise a right of Borrower
or Silicon, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements; (b) Execute
on behalf of Borrower any document exercising, transferring or assigning any
option to purchase, sell or otherwise dispose of or to lease (as lessor or
lessee) any real or personal property which is part of Silicon's Collateral or
in which Silicon has an interest; (c) Execute on behalf of Borrower, any
invoices relating to any Account, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim of mechanic's, materialman's or other lien, or assignment or
satisfaction of mechanic's, materialman's or other lien; (d) Take control in any
manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Silicon's possession; (e) Endorse all
checks and other forms of remittances received by Silicon; (f) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than face
value and execute all releases and other documents in connection therewith; (h)
Pay any sums required on account of Borrower's taxes or to secure the release of
any liens therefor, or both; (i) Settle and adjust, and give releases of, any
insurance claim that relates to any of the Collateral and obtain payment
therefor; (j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Silicon the same rights
of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) Take any action or pay any sum required of Borrower pursuant
to this Agreement and any other Loan Document. Any and all reasonable sums paid
and any and all reasonable costs, expenses, liabilities, obligations and
attorneys' fees incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. In no event shall Silicon's rights under the foregoing power of
attorney or any of Silicon's other rights under this Agreement be deemed to
indicate that Silicon is in control of the business, management or properties of
Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Silicon shall have the option, exercisable at any time, in its good
faith business judgment, of either reducing the Obligations by the principal
amount of purchase price or deferring the reduction of the Obligations until the
actual receipt by Silicon of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the Massachusetts Uniform Commercial Code and
under all other applicable laws, and under any other instrument or agreement now
or in the future entered into between Silicon and Borrower, and all of such
rights and remedies are cumulative and none is exclusive. Exercise or partial
exercise by Silicon of one or more of its rights or remedies shall not be deemed
an election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
Section 8 DEFINITIONS.
As used in this Agreement, the following terms have the following meanings:
"Accounts" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), accounts receivable,
health-care insurance receivables, rights to payment, letters of credit,
contract rights, chattel paper, instruments, securities, securities accounts,
investment property, documents and all other forms of obligations at any time
owing to Borrower, all guaranties and other security therefor, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in transit
and all other rights or remedies of an unpaid vendor, lienor or secured party.
"Account Debtor" means the obligor on an Account.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Cash Management Services" means Silicon's cash management services,
direct deposit of payroll, business credit card, and check cashing services as
may be further identified in the various cash management services agreements
related to such Cash Management Services.
"Code" means the Uniform Commercial Code as adopted and in effect in
the Commonwealth of Massachusetts from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 7.2 above.
"Deferred Revenue" is all amounts received in advance of performance
under contracts and not yet recognized as revenue.
"Deposit Account" has the meaning set forth in Section 9-102 of the
Code.
"Eligible Accounts" means Accounts, General Intangibles, and Payment
Intangibles arising in the ordinary course of Borrower's business from the sale
of goods or the rendition of services, or the non-exclusive licensing of
Intellectual Property, which Silicon, in its good faith business judgment, shall
deem eligible for borrowing. Without limiting the fact that the determination of
which Accounts are eligible for borrowing is a matter of Silicon's discretion,
the following (the "Minimum Eligibility Requirements") are the minimum
requirements for an Account to be an Eligible Account: (i) the Account must not
be outstanding for more than 90 days from its invoice date, (ii) the Account
must not represent progress xxxxxxxx, be due under a fulfillment or requirements
contract with the Account Debtor or represent Deferred Revenue, (iii) the
Account must not be subject to any contingencies (including Accounts arising
from sales on consignment, guaranteed sale or other terms pursuant to which
payment by the Account Debtor may be conditional, except as may otherwise be
acceptable to Silicon in its discretion), (iv) the Account must not be owing
from an Account Debtor with whom the Borrower has any material dispute (whether
or not relating to the particular Account), (v) the Account must not be owing
from an Affiliate of Borrower, (vi) the Account must not be owing from an
Account Debtor which is subject to any insolvency or bankruptcy proceeding, or
whose financial condition is not acceptable to Silicon, or which, fails or goes
out of a material portion of its business, (vii) the Account must not be owing
from the United States or any department, agency or instrumentality thereof
(unless there has been compliance, to Silicon's satisfaction, with the United
States Assignment of Claims Act), (viii) the Account must not be owing from an
Account Debtor located outside the United States (unless pre-approved by Silicon
in its discretion in writing, or backed by a letter of credit satisfactory to
Silicon, or FCIA insured satisfactory to Silicon), and (ix) the Account must not
be owing from an Account Debtor to whom Borrower is or may be liable for goods
purchased from such Account Debtor or otherwise. Accounts owing from one Account
Debtor will not be deemed Eligible Accounts to the extent they exceed 25% of the
total Accounts outstanding; provided, however, such amount shall be increased to
40% for Standard Capital and Med One Capital, provided further, however, the
aggregate of all Eligible Accounts from Standard Capital and Med One Capital
combined shall not exceed 50% of all Eligible Accounts. In addition, if more
than 50% of the Accounts owing from an Account Debtor are outstanding more than
90 days from their invoice date (without regard to unapplied credits) or are
otherwise not eligible Accounts, then all Accounts owing from that Account
Debtor will be deemed ineligible for borrowing. Silicon may, from time to time,
in its good faith business judgment, revise the Minimum Eligibility
Requirements, upon written notice to the Borrower.
"Eligible Inventory" means Borrower's Inventory located in the United
States which Silicon, in its good faith business judgment, shall deem eligible
for borrowing pursuant to the terms of this Agreement, but does not include, in
any event, used, returned, obsolete, consigned, demonstrative or custom
Inventory, supplies, packing or shipping materials, or any Inventory not subject
to a first perfected security interest in favor of Silicon or any Inventory not
in the possession of Borrower.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory) of every kind and
description used in Borrower's operations or owned by Borrower and any interest
in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of
this Agreement.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied.
"Guarantor" means any present or future guarantor of the Obligations,
including, without limitation, the Parent.
"General Intangibles" means all general intangibles of Borrower,
whether now owned or hereafter created or acquired by Borrower, including,
without limitation, all choses in action, rights to payment for credit extended,
amounts due to Borrower, credit memoranda in favor of Borrower, warranty claims,
causes of action, corporate or other business records, deposits, Deposit
Accounts, inventions, designs, drawings, blueprints, franchises, customer lists,
security and other deposits, rights in all litigation presently or hereafter
pending for any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Borrower against
Silicon, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower, all rights
to indemnification and all other intangible property of every kind and nature
(other than Accounts), but excluding in any event all Intellectual Property,
whether existing or hereafter developed or acquired.
"Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"Intellectual Property" has the meaning set forth in Section 2.1.
"Inventory" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease (including without
limitation all raw materials, work in process, finished goods and goods in
transit), and all materials and supplies of every kind, nature and description
which are or might be used or consumed in Borrower's business or used in
connection with the manufacture, packing, shipping, advertising, selling or
finishing of such goods, merchandise or other personal property, and all
warehouse receipts, documents of title and other documents representing any of
the foregoing.
"Inventory Value" shall mean, at the date of determination thereof, the
lower of cost or market value of Borrower's Eligible Inventory as determined in
accordance with GAAP.
"Letter-of-Credit Rights" means all letter-of-credit rights including,
without limitation, "letter-of-credit rights" as defined in the Code and also
any right to payment or performance under a letter of credit, whether or not the
beneficiary has demanded or is at the time entitled to demand payment or
performance.
"Loan Documents" means, collectively, this Agreement, the Perfection
Certificate, the Negative Pledge Agreement, and all other present and future
documents, instruments and agreements between Silicon and Borrower, including,
but not limited to those relating to this Agreement, and all amendments and
modifications thereto and replacements therefor.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, including, without limitation, the
Borrower's obligations pursuant to the Negative Pledge Agreement, whether
arising from an extension of credit, opening of a letter of credit, banker's
acceptance, foreign exchange contracts, loan, Cash Management Services,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by
Silicon in Borrower's debts owing to others), absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorney's fees, expert witness fees, audit fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other present or future instrument or agreement between
Borrower and Silicon.
"Parent" means Diomed Holdings, Inc., a Delaware corporation.
"Payment" means all checks, wire transfers and other items of payment
received by Silicon (including proceeds of Accounts and payment of the
Obligations in full) for credit to Borrower's outstanding Loans or, if the
balance of the Loans have been reduced to zero, for credit to its Deposit
Accounts.
"Payment Intangibles" means all payment intangibles including, without
limitation, "payment intangibles" as defined in the Code and also any general
intangible under which the Account Debtor's primary obligation is a monetary
obligation.
"Perfection Certificate" means all that certain Perfection Certificate
of even date herewith executed by Borrower in favor of Silicon.
"Permitted Indebtedness" is: (a) Borrower's indebtedness to Silicon
under this Agreement or the Loan Documents, (b) Subordinated Debt, (c)
Indebtedness to trade creditors and landlords incurred in the ordinary course of
business; (d) Indebtedness as reflected on the Borrower's books and records most
recently submitted to Silicon, and (e) Indebtedness secured by Permitted Liens.
"Permitted Liens" means the following: (i) purchase money security
interests in specific items of Equipment in an amount not to exceed $100,000 in
the aggregate at any time during the term of this Agreement; (ii) leases of
specific items of Equipment in an amount not to exceed $100,000 in the aggregate
at any time during the term of this Agreement; (iii) liens for taxes not yet
payable; (iv) additional security interests and liens consented to in writing by
Silicon, which consent shall not be unreasonably withheld; (v) security
interests being terminated substantially concurrently with this Agreement; (vi)
liens of materialmen, mechanics, warehousemen, carriers, or other similar liens
arising in the ordinary course of business and securing obligations which are
not delinquent; (vii) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described above
in clauses (i) or (ii) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; and (viii)Liens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods. Silicon will have the right to require, as a condition to its consent
under subsection (iv) above, that the holder of the additional security interest
or lien sign an intercreditor agreement on Silicon's then standard form,
acknowledge that the security interest is subordinate to the security interest
in favor of Silicon, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Reserves" means, as of any date of determination, such amounts as
Silicon may from time to time establish and revise in good faith and in its
commercially reasonable judgment reducing the amount of Loans, Letters of Credit
and other financial accommodations which would otherwise be available to
Borrower under the lending formula(s) provided in the Schedule: (a) to reflect
events, conditions, contingencies or risks which, as determined by Silicon in
good faith, do or are reasonably likely to affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Accounts), (ii) the assets
or business of Borrower or any Guarantor, or (iii) the security interests and
other rights of Silicon in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Silicon's good faith belief
in its commercially reasonable judgment that any collateral report or financial
information furnished by or on behalf of Borrower or any guarantor to Silicon is
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Silicon determines in good faith and in its
commercially reasonable judgment constitutes an Event of Default or is
reasonably likely to, with notice or passage of time or both, constitute an
Event of Default.
"Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's debt to Silicon (pursuant to a subordination agreement entered into
between Silicon, Borrower and the subordinated creditor), on terms acceptable to
Silicon.
"Supporting Obligations" means all supporting obligations including,
without limitation, "supporting obligations" as defined in the Code and also any
letter-of-credit right or secondary obligation which supports the payment or
performance of an account, chattel paper, a document, a general intangible, an
instrument, or investment property.
"Transition Event" means, at any time, to be tested by Silicon as of
the end of each month, the Borrower's failure to maintain at least $5,000,000.00
in (i) cash deposits maintained at Silicon, and/or (ii) excess "availability"
under this Agreement (net of Loans, Letters of Credit or other indebtedness
under this Agreement), as determined by Silicon based upon the Credit Limit
restrictions set forth in Section 1 of the Schedule hereto.
Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
Section 9 GENERAL PROVISIONS.
9.1 Interest Computation; Float Charge. In computing interest on the
Obligations, all Payments received after 12:00 Noon, Pacific time, on any day
shall be deemed received on the next Business Day. In addition, upon the
occurrence of the Transition Event, Silicon shall be entitled to charge Borrower
a "float" charge in an amount equal to three Business Days interest, at the
interest rate applicable to the Loans, on all Payments received by Silicon when
borrowing. The float charge for each month shall be payable on the last day of
the month. Silicon shall not, however, be required to credit Borrower's account
for the amount of any item of payment which is unsatisfactory to Silicon in its
good faith business judgment, and Silicon may charge Borrower's loan account for
the amount of any item of payment which is returned to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the
Obligations may be applied, and in Silicon's good faith business judgment
reversed and re-applied, to the Obligations, in the same order as is set forth
in Section 4.4 above with respect to the application of payments and proceeds of
Accounts.
9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly, within
thirty (30) days after the end of the following month, with an account of
advances, charges, expenses and payments made pursuant to this Agreement. Such
account shall be deemed correct, accurate and binding on Borrower and an account
stated (except for reverses and reapplications of payments made and corrections
of errors discovered by Silicon), unless Borrower notifies Silicon in writing to
the contrary within ninety (90) days after each account is rendered, describing
the nature of any alleged errors or omissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager and shall be forwarded to the Newton, Massachusetts address. All
notices shall be deemed to have been given upon delivery in the case of notices
personally delivered, or at the expiration of one Business Day following
delivery to the private delivery service, or two Business Days following the
deposit thereof in the United States mail, with postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 Waivers; Indemnity. The failure of Silicon at any time or times to
require Borrower to strictly comply with any of the provisions of this Agreement
or any other present or future agreement between Borrower and Silicon shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar. None of
the provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives the benefit of all statutes of
limitations relating to any of the Obligations or this Agreement or any document
related hereto, and Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement. Borrower
hereby agrees to indemnify Silicon and its affiliates, subsidiaries, parent,
directors, officers, employees, agents, and attorneys, and to hold them harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable
attorneys' fees), of every kind, which they may sustain or incur based upon or
arising out of any of the Obligations, or any relationship or agreement between
Silicon and Borrower, or any other matter, relating to Borrower or the
Obligations; provided, that this indemnity shall not extend to damages caused by
the indemnitee's own gross negligence or wilful misconduct. Notwithstanding any
provision in this Agreement to the contrary, the indemnity agreement set forth
in this Section shall survive any termination of this Agreement and shall for
all purposes continue in full force and effect.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Silicon, or
any of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon, but nothing herein shall relieve
Silicon from liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and all present and future documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower's books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Silicon's security interest in, the Collateral; and
otherwise represent Silicon in any litigation relating to Borrower. In
satisfying Borrower's obligation hereunder to reimburse Silicon for attorneys
fees, Borrower may, for convenience, issue checks directly to Silicon's
attorneys, Xxxxxx & Xxxxxxxxxx, LLP, but Borrower acknowledges and agrees that
Xxxxxx & Xxxxxxxxxx, LLP is representing only Silicon and not Borrower in
connection with this Agreement. If either Silicon or Borrower files any lawsuit
against the other predicated on a breach of this Agreement, Silicon shall be
entitled to recover its reasonable costs and attorneys' fees, including (but not
limited to) reasonable attorneys' fees and costs incurred in the enforcement of,
execution upon or defense of any order, decree, award or judgment. All
attorneys' fees and costs to which Silicon may be entitled pursuant to this
Section 9.12 shall immediately become part of Borrower's Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 Right of Set-Off. Borrower and any guarantor hereby grant to
Silicon a lien, security interest, and right of setoff as security for all
Obligations to Silicon, whether now existing or hereafter arising upon and
against all deposits, credits, collateral and property, now or hereafter in the
possession, custody, safekeeping, or control of Silicon or any entity under the
control of Silicon Valley Bank or in transit to any of them. At any time after
the occurrence and during the continuance of an Event of Default, without demand
or notice, Silicon may set off the same or any part thereof and apply the same
to any liability or obligation of Borrower and any guarantor then due and
regardless of the adequacy of any other collateral securing the loan. ANY AND
ALL RIGHTS TO REQUIRE SILICON TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS, OR OTHER PROPERTY OF THE BORROWER
OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY, AND IRREVOCABLY WAIVED.
9.16 Section Headings; Construction. Section headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
section, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the Commonwealth of Massachusetts. As
a material part of the consideration to Silicon to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement or any Loan Documents shall, at Silicon's option,
be litigated in state or federal courts located within Massachusetts; (ii)
consents to the jurisdiction and venue of any such court and consents to service
of process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Borrower may have
to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding, provided, however, that if for any
reason Silicon cannot avail itself of such courts in the Commonwealth of
Massachusetts, Borrower accepts jurisdiction of the courts and venue in Santa
Clara, California.
9.18 Mutual Waiver of Jury Trial. Borrower and Silicon each hereby
waive the right to trial by jury in any action or proceeding based upon, arising
out of, or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and Borrower, or any conduct, acts or
omissions of Silicon or Borrower or any of their directors, officers, employees,
agents, attorneys or any other persons affiliated with Silicon or Borrower, in
all of the foregoing cases, whether sounding in contract or tort or otherwise.
9.19 Confidentiality. In handling any confidential information of
Borrower or Guarantor, Silicon shall exercise the same degree of care that it
exercises for its own proprietary information (but in any case not less than
reasonable care or the minimal standards for confidentiality and privacy
required by applicable law), but disclosure of information may be made: (i) to
Silicon's subsidiaries or affiliates in connection with their present or
prospective business relations with Borrower; (ii) to prospective transferees or
purchasers of any interest in the Loans, but only with the Borrower's prior
consent prior to the occurrence of an Event of Default, otherwise no such
consent shall be required; (iii) as required by law, regulation, subpoena, or
other order, provided that, if permitted under applicable law, Silicon shall
endeavor to provide Borrower with advance notice of such intended disclosure;
(iv) as required in connection with Silicon's examination or audit; and (v) as
Silicon considers appropriate in exercising remedies under this Agreement.
Confidential information does not include information that either: (a) is in the
public domain or in Silicon's possession when disclosed to Silicon, or becomes
part of the public domain after disclosure to Silicon (through no act or
omission of Silicon); or (b) is disclosed to Silicon by a third party, which
third party is not under any non-disclosure obligation.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.
Borrower:
DIOMED, INC.
By
-----------------------------------------
Name:
Title:
Silicon:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By
-----------------------------------------
Name:
Title:
